Interest Rate Pass-Through in the Dominican Republic

December 10, 2015

Preview Citation

Format: Chicago

Francesco Grigoli, and José M. Mota Interest Rate Pass-Through in the Dominican Republic, (USA: International Monetary Fund, 2015) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

A well-functioning monetary transmission mechanism is critical for monetary policy. As the Dominican Republic recently adopted an inflation targeting regime, it is even more relevant to guarantee that changes in the monetary policy rates are quickly and fully reflected in retail rates, to eventually influence aggregate demand and inflation. This paper estimates the interest rate pass-through of the monetary policy rate to retail rates and explores asymmetries in the adjustment. We find evidence of complete pass-through to retail rates, confirming the effectiveness of the monetary policy transmission mechanism. However, our results also suggest a faster pass-through to lending rates than to deposit rates and asymmetric adjustments of short-term rates, as deposit rates respond faster to policy rate cuts and lending rates respond faster to policy rate hikes. Measures to enhance competition in the financial system could help to achieve a symmetric adjustment of retail rates.

Subject: Banking, Central bank policy rate, Deposit rates, Financial institutions, Financial services, Interbank rates, Loans, Monetary policy, Reserve requirements

Keywords: Asymmetric, Central America, Central bank policy rate, Deposit rates, Dominican Republic, Global, Interbank rates, Interest rate, Interest rate pass-through, Loans, Monetary policy, Monetary policy rate, Pass-through, Rate increase, Rate introduction, Reserve requirements, Speed of adjustment, Transmission mechanism, WP

Publication Details

Pages:

28
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2015/260
Stock No:

WPIEA2015260
ISBN:

9781513584393
ISSN:

1018-5941

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